THE ISA concept was introduced by the then Chancellor, Gordon Brown, in his first budget and was first made available to the public in 1999. ISAs are an effective wrapper for investments that protect funds deposited in them from both income and capital gains taxes, although unlike pensions they do not benefit from tax relief on contributions.
ISAs also have the added benefit of being easily accessible and funds can be removed as and when the investor wishes, although there are limits on contributions within each tax year. Currently ISAs (or individual savings accounts) are held by more than 16 million individual investors, with policies worth more than £180 billion.
In the current 2008-09 tax year, people will be allowed to save up to £3,600 into a cash ISA and up to £7,200 in a stocks and shares ISA, within an overall annual savings limit of £7,200. This is an increase on last year’s contribution limits which were limited to £3,000 into a cash ISA and up to £7,000 in a stocks and shares ISA, within an overall annual savings limit of £7,000.
In addition, ISA savers will be able to invest in two separate ISAs each tax year: a cash ISA and a stocks and shares ISA. For example, investors can chose to save £1,000 in a cash ISA with one provider and £6,200 in a stocks and shares ISA with a different provider.
Also, the distinction between mini and maxi ISAs will no longer exist. Mini cash ISAs, TOISAs and the cash component of a maxi ISA will automatically become cash ISAs. Mini stocks and shares ISAs and the stocks and shares component of a maxi ISA will automatically become stocks and shares ISAs.
It should also be noted that from 6th April this year, all Personal Equity Plans (PEPs) will automatically become stocks and shares ISAs. Investors will be able to invest in this re-labelled PEP as long as they haven’t subscribed to another stocks and shares ISA during the current tax year.
Last December the Government also announced that any cash saved so far in ISAs could eventually be rolled forward into a new stocks and shares ISA, without infringing that year’s contribution limit. This means ISA savers will be able to transfer money saved in their cash ISA to their stocks and shares ISA.
So now we have dealt with the basic details, here are our top tips for ISA investment in the forthcoming tax year.
BlackRock Merrill Lynch Gold & General
During periods of economic uncertainty, like the one we are currently facing, investments into gold can be a highly attractive option. This is because gold is a stateless investment that has a universal appeal. The climate for gold is as good as it’s been in recent history.
The jewellery industry is the major market for this commodity and the enhanced wealth in the middle classes of India and China has dramatically escalated the demand for gold. This has meant that since 1999 the gold price has more than tripled, reaching an all-time peak of $913 an ounce on 15th January.
Even at current prices it looks excellent value and we think growing demand could continue to bolster the price. Although it must be remembered that this is not certain, and that prices may well go down as well as up.
We at Allchurch Bailey believe the (BlackRock) Merrill Lynch Gold & General Fund is an excellent way to invest in this sector and a great way for investors to benefit over the long term from the increased demand for gold.
- Performance: 1 year, 41.57%; 3 years, 160.83%; 5 years, 253.66%.
Jupiter European Special Situations
As investors remain concerned about the credit markets and the impact of a slowdown in the US, the manager of Jupiter’s European Special Situations portfolio has balanced his fund with a greater bias towards larger companies.
He believes many have been sold indiscriminately so he is using this opportunity to buy his favourites at bargain levels. We believe this strategy will prove beneficial for the investor over the longer term.
- Performance: 1 year, 1.01%; 3 years, 64.91%; 5 years, 191.98%.
Invesco Perpetual Monthly Income Plus
If you are looking for a high income with the potential for capital growth, and are able to invest for the long term, we believe you should definitely look at this fund.
First, it currently offers a yield of 7.5% gross (variable and not guaranteed). Within an ISA the income is completely tax-free, and you can either withdraw it monthly or roll it up with the fund enhancing growth.
Secondly, all the signals indicate that this could be one of the best times to invest in fixed interest for almost 10 years. The last time bonds were this attractive was the turn of the millennium.
Today yields are at a similar level to February 2000, but valuations are even lower. This means investors who act now have the opportunity to benefit from these income levels. In addition if valuations rise there is also the potential for capital growth. Please remember though that all funds can fall in value as well as rise.
Finally, the fund has the capacity to invest throughout the market, and it is managed by one of the best fixed interest teams in the UK.
In summary, we believe this is an opportunity that we might not see again for many years. This is why we recommend the Invesco Perpetual Monthly Income Plus fund as an ideal home part of your 2008-09 ISA allowance.
- Performance: 1 year, -5.81%; 3 years, 13.83%; 5 years, 65.24%.
Finally, if you want to secure your ISA allowances but don’t want to make an investment decision today, you can hold cash within an ISA at 6.15% tax free until you decide upon the next best course of action.
Nico Kontou Goymer can be contacted at Allchurch Bailey Investment Consultants Ltd, Almswood House, 93 High Street, Evesham, WR11 4DU; telephone 01386 442597, e-mail invest@allchurchbailey.co.uk, website
